- Gold, yen and Swiss franc benefit from safe haven flows;
- Will EIA data be the trigger for further gains in oil after API report large drawdown;
- U.S. productivity and labor costs of interest ahead of Friday’s inflation report.
We’re seeing significant risk aversion in the markets on Wednesday, with the escalation in tensions between the U.S. and North Korea triggering moves into safe haven assets.
Equity markets in Europe are down more than 1% in most cases and Wall Street is also facing a negative open, as investors turn away from perceived riskier instruments in favor of the traditional safe havens. Gold—the ultimate safe haven instrument—is up around 0.6% so far on the day and could extend these gains if investor sentiment continues to deteriorate.
The yen, despite Japan being in the thick of it, is also seeing plenty of safe haven flows although it’s the Swiss Franc which is proving to be the biggest winner in all of this, trading around 1% higher against the U.S. dollar, euro and pound. It will be interesting to see if the yen maintains its safe haven status should this continue to escalate into something far more serious than just the war of words it currently is.
Oil is trading a little higher again on the day, possibly spurred on a little by the latest verbal sparring between Donald Trump and North Korea. Still, it continues to trade a little off the highs of the last week or so, with $53 still proving a strong barrier to the upside in Brent and $50 doing likewise in WTI. EIA may provide the necessary catalyst for a test of this later on in the day, especially if we see a number in line with last night’s API report.
U.S. data is looking a little light once again, although as we saw on Tuesday, even numbers that aren’t typically associated with big market moves can take their toll. The JOLTS number further highlighted the diminishing slack in the U.S. labor market that should drive higher wages in the not too distant future, although it’s worth noting that this is something the Fed has been expecting for some time as the unemployment number has continued to decline. Today’s numbers from the U.S. come in the form of non-farm productivity and unit labor costs, both of which should theoretically, at least, be a key indicator of future wage and inflation trend. More good numbers here could trigger similar moves to those we saw yesterday, particularly with the dollar continuing to look very oversold.